International Trade Committee on May 31st, 2012

[Don Davies, NDP, Vancouver Kingsway, BC]

Forgive me if you've covered this, but if you have, I'd like to expand on it. Do you see any non-tariff barriers affecting your ability to export your products to Japan?

[Phil de Kemp]

There are some very high tariffs, no question about it.

Look, I came from a dairy farm and the word “quotas” right now seems to be a dirty word around the world, or here perhaps. But everything is driven by quotas in applications in Japan, and certainly for malt. If you're over quota, the tariff is half the value of the product; it's $250 a tonne. Generally, you don't hit that tariff level because they will allocate. Their first priority is their domestic barley producers.

If there is a way to somehow recognize that portion of what they have to purchase from their producers, but that is allocated to the rest of the exporting countries—because we make up about 40% of that market—that would be a huge win for us. I mean, that's going to drive the bus as far as additional exports to there are concerned. We're not asking them to change the quotas, just make those quotas apply to our competing countries if we're going to have an economic partnership agreement.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move to Mr. Keddy, seven minutes.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Thank you, Mr. Chairman.

Welcome to our witnesses.

I'll go first to Mr. de Kemp.

We were in Japan last week and one of the groups we met with was Sapporo. They use a lot of Canadian barley. They were very quick to say they use Canadian barley based on quality. I think as long as we produce the same quality of malted barley we're producing now, the market is fairly strong.

I want to be clear. We're getting in tariff-free now. If we are successful in signing this agreement with Japan, and I believe we will be, what specifically are you looking for from the malted barley industry?

[Phil de Kemp]

Two things, if I may. Sapporo is such an important customer that it has an economic relationship with the bigger prairie malt plants because it has developed a variety, PolarStar, that is now grown by producers. Their brewers spend over two months a year doing farm audits for supply chain management. It's a supremely important customer. Sapporo, as you may or may not know, bought Sleeman Breweries in Guelph a number of years ago.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Most importantly, they make excellent beer.

[Some hon. members]

Oh, oh!

[Phil de Kemp]

Absolutely.

The tariffs aren't going to be the issue. It's going to be on the quotas. We have to still spend a little bit of time on this. We have differences of opinion among the members, quite frankly, about this, about their taxation policies. I know it's a domestic policy issue. They have different categories of beer now. Full malt beer, which is a regular beer that's made with malt—like in Canada, the United States, and Europe—have different categories now, where it's microbeer or using different adjuncts, and they're taxed differently. The taxation on a regular beer was extremely high to make up for some lobbying issues from some other happoshu manufacturers.

That's changed a little bit. We still have to take a look at that, as to whether there is something that can be done there. But on the tariff side, no; on the quota side, absolutely.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Thank you for that. It often breaks down to that whole non-tariff barrier that's there on the regulatory side.

Mr. Newman, you talked a little bit about quality lumber going into Japan. We certainly realize that Japan has a long history of wood-frame construction, and Canada certainly has a long history of supplying excellent material for wood-frame construction.

How much has forestry certification played in your exports to Japan?

[Paul Newman]

They do have strict growing requirements for forestry certification in Japan. I think Canada has stood above, a little bit, current developments with Japan, because we have such a long and solid trading relationship. They've had lots of interaction with provincial forestry authorities and groups like that. I think that over the years they've developed a confidence in our forestry management regimes here.

Early on, frankly, we were concerned as to whether or not we were going to have to really ramp up our efforts in regard to certification, but we have found that the Japanese hold our approaches in high regard, so we don't see that as an issue at this time.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

I do see a bit of a problem in the amount of assistance that the Japanese are giving to their forest industry. We certainly had silviculture assistance in Canada, and I think it was money well spent, quite frankly. But when you start to get into subsidizing 50% of machinery costs, that becomes a huge competitive advantage.

How would you like to see that addressed in an EPA?

[Paul Newman]

I have to admit I don't know how, in the negotiating process, one can deal with those issues, but it is definitely manifesting itself in the market. A colleague of mine who just returned from Japan was in Tohoku, the devastated region of northeast Japan, and saw a brand new sawmill, fully automated, that had been 50% paid for by government funds.

It is happening. We're seeing it not only in the sawmill industry; we're seeing it in the panel board sector as well, so I think it should be on the table. How, in a bilateral negotiation you actually address that, I can't claim to be knowledgeable, but I think it does need to be addressed, sir.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

I appreciate the comment, though.

I think what we do have to realize is that we actually were able to visit some of the northeast region where the tsunami and earthquake epicentre was. It's pretty daunting, quite frankly, to be in some of those areas. I think we have to appreciate the fact that Japan will need to help its forest industry to get over this absolutely horrific natural disaster. However, going from this point forward, when we're discussing an EPA, I think we have to look for fairness of the regulatory regime, openness, and a lack of tariff on wood products coming in, and those technical barriers you're talking about certainly need to be eliminated or reduced.

How much, though, on the regulatory side? You talked about that a little bit to the former questioner. How much are you seeing on the regulatory side? It's one thing to get market access; it's another thing to get beyond the building codes and all the technical barriers.

[Paul Newman]

That's right.

I apologize. I have to keep my remarks brief. Our time for speakers was reduced today.

There are issues on the building codes and standards side. Japan has a tendency to develop unique regulations and requirements when it comes to standards and requirements, and this makes it difficult for international exporters to comply with local standards and local building requirements. One example would be in the area of conformity assessment. Products used in construction, say, are assessed and deemed suitable for use. Japan typically doesn't recognize foreign certification systems or foreign certification organizations, and they usually require registration under their own system. That adds costs and complexity for foreign exporters.

Another example would be that they require expensive, and we would argue unnecessary, testing on some products, such as OSB, for emissions, such as formaldehyde. It's not that formaldehyde should not be restricted or regulated, but the information on what the emissions are from OSB is very well known. Yet they require monthly testing and monthly compliance, and it seems to be unnecessary.

We also think that Canada could argue for streamlining some of the processes Japan uses to evaluate and approve building code changes. It takes a long time if you're trying to introduce new systems and new concepts. Some form of streamlining process would be advantageous.

[The Chair, Conservative, Rob Merrifield]

Okay, thank you.

Go ahead, Mr. Easter.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you, Mr. Chair, and thanks to the witnesses.

Starting first with Mr. de Kemp, you mentioned South Korea. In fact, most of the agriculture witnesses that have come before the committee are very concerned about the lack of progress on the South Korea trade deal and the fact that we will be displaced by the Americans. You said in your comments that you were more concerned because of information you received yesterday. What would that be?

[Phil de Kemp]

We were one of the founding members of the Canadian Agri-Food Trade Alliance. We got our e-mail briefing from Kathleen, our executive director, yesterday. Obviously, if she sent it to us, it's not confidential, I would assume. It indicated that some Canadian officials just came back, and it sounded as if the South Koreans were not interested in re-engaging, as opposed to starting from scratch.

The signals are that there were probably some things that may have been advantageous to us that they want to start from square one. Obviously, we know that up to this point, it has been sensitive to the automotive industry. I think that the agriculture interests and some others were quite happy to hear from the government that Canada did want to re-engage and that the sensitivities, obviously, still are for Korea's automotive, beef, and pork.

I know that our industry, because we do export 25,000 to 40,000 tonnes, has already been on the record as saying that with the KORUS agreement and the European agreement, we'll probably be out of there in two years because of the tariff differentials. The tariff is significant.

[Wayne Easter, Liberal, Malpeque, PE]

That's good information for us to have. That's basically what we're hearing from the beef and pork industry as well. We're okay this year, but at the end of two years, we're in trouble. That's good information.

Mr. Newman, in your remarks and in your paper, you talked about Kyoto and the fact that, I guess, sales in Japan are driven a certain amount by the Kyoto Protocol. Can you expand on that? What do you mean, and how do we compare?

[Paul Newman]

Aside from other measures to reduce carbon emissions through energy efficiency, things like that, by undertaking to reduce their emissions by 6%, they're proposing to sequester 13 million tonnes. That's the amount of carbon they've identified in their forest.

To do that they want to harvest a large portion of their forest and then encourage new growth, which would lock up and absorb that 13 million tonnes over time. In order to facilitate that, they are essentially trying to grow the use of domestic timber to create markets that enable the removal and then the restocking of those forests to capture the carbon. That's the process they're trying to facilitate.

[Wayne Easter, Liberal, Malpeque, PE]

We've withdrawn from the Kyoto Protocol. From a government policy perspective in Canada, how are we impacted by that? What does Canada have to do to ensure that.... Is that damaging our ability to move wood products to Japan?

[Paul Newman]

I don't think it is at this time. The forestry agency is pushing this initiative in Japan. It's part of a large ministry, and they've identified some important segments of our business as targets for the development of domestic timber. We talked a little about this so-called two by four building market—North American-style, light-frame construction—they've identified that they want to build a strong bridgehead in that market. If they were successful, we'd stand to lose a significant share of the market, which we currently hold about 90% of.

[Wayne Easter, Liberal, Malpeque, PE]

You mentioned earlier that one of the things we had to look at was streamlining some of the processes they use in assessing our product, getting in or accommodating their laws, or whatever. Could you be a little more specific on that? That might be a recommendation we would want to put in a report in any trade agreement that we have with Japan. I would see that in part as a non-tariff trade barrier.

[Paul Newman]

They have a rigid system of codes and building requirements in Japan, and in order to introduce new technologies, typically you have to apply for what they call a ministerial approval. In Canada that might fall under the National Research Council's CCMC building materials process.

We have successfully done that in some cases, say, to do with fire-rated construction, but it's taking an inordinately long time to get those approvals through the system in Japan. It's the non-standard approaches to construction solutions that we have concerns about, and the lengthy process it takes to get them through their regulatory system. That's what I'm referring to in that point.

[Wayne Easter, Liberal, Malpeque, PE]

Okay, I'm going to run out of time.

[The Chair, Conservative, Rob Merrifield]

You are out of time, but I'll allow a very tight question from you.